Forex Trading Guide Before you Start
Forex is the short form of foreign exchange market. It is the decentralized international market for trading currency. It is basically a market where currency trading is done. Forex market is the largest liquid market in the world. It is also known as Currency market, FX or Foreign Exchange.
Forex Trading
The companies and people convert one currency to another currency through the forex exchange market. In the Forex trading market banks, government, investors, traders, businesses come to exchange and speculate on currency. For e.g. when we travel to another country, we exchange home currency with the currency of destination country so that we can spend in abroad.
What is Forex trading?
It refers to the speculation on the price of a currency against each other. Forex trading is also known as currency trading. Here trader buys pair currency against each other and sells at the higher price with the objective of earning the profit. In forex exchange market currencies are traded in pair for e.g. EUR/USD
For example – buying EUR/USD means buying Euro by selling US Dollar and buying USD/EUR means buying US Dollar by selling Euro
Two types of currencies -
Base currency - the first currency is the base currency i.e. EUR in EUR/USD.
Quote/Counter currency - the second currency is counter currency i.e. USD in EUR/USD.
EUR/USD - means how many units of counter currency i.e. USD is needed to buy the units of base currency i.e. EUR.
Basic terms
• Ask price – In foreign exchange market, it is the price at which we are buying a currency and price at which market is selling.
• Bid price - It is the price at which we are selling a currency and price at which market is buying.
• Spread - It is the amount difference between the bid price and the asking price.
• Currency rate - It is the rate at which one currency is exchanged for the currency. For e.g. EUR/USD =1.06 means one euro is worth 1.06 dollars. To buy one Euro, you have to sell 1.06 dollars and if we sold one euro you would receive 1.06 dollars.
• PIP – It measures the change in value between two currencies.
Forex trading is done through foreign exchange market. Online forex trading is done through the online platform. Currency trading also contains data analytical tool which guides you in making good investment decisions. Various trading platforms are giving 24/7 support.